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What is an Umbrella Company

A simple explanation of the workings of an Umbrella Company

In a typical employment situation the worker will get paid directly by the employer but sometimes this isn’t possible.

It might be that the work is only for a short period or fixed period of time, the company might not want to have a
direct importer relationship with the worker or the company might not have an office in the physical location where the work is taking place and is so unable to provide a payroll service.

An umbrella company acts between the employer and the worker, the umbrella company will invoice the client, receive the funds and pay the worker.

It also pays tax and social security contributions, it operates effectively as an outsourced employer.

Umbrella companies provide this service to lots of workers at once which means they offer the benefits
economies of scale.

Some key attributes of an umbrella company:

  • It will have all the necessary licenses and registrations it needs to run payroll.
  • It will have the appropriate level of professional indemnity and public liability insurance
  • It will be very efficient at processing payments to workers, generally within a couple of hours of funds being received.
  • It will be fully compliant with all employment immigration and taxation requirements
  • Often it will also be able to sponsor work visas for foreign contractors

Generally, be because of their size and volume their fees are very low.

One key benefit for workers

Umbrella companies offer high net earnings retention, often the retention will be better than if they are employed directly by the end client.
How do they do this? well remember umbrella companies have a simple primary function, they’re set up to act as an outsourced employer they’ve got great expertise in employment tax and they understand how to take full advantage of the existing legal provisions to reduce their customers tax bills.

They might do it through one of several ways:

  • Expense processing, including dispensations which are negotiated directly with the tax authorities
  • Taking advantage of relocation or dual tax deductions for international assignees
  • They can offer contractors reduced costs for group purchasing
  • They can be flexible in terms of structuring salary sacrifice to best benefit an employee
  • Hire-purchase agreement for a car
  • They can assist workers in taking full advantage of contributions to pensions, which are often shielded from the
    highest rates of tax

The end result should be wins for the company and the worker, saving money saving time, and of course achieving this with full compliance to HMRC employment laws.

If you would like a professional Umbrella Company to provide you with a competent contracting solution then please get in touch today 0113 8267260.


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